IN SEARCH OF THE "FOUR-WAY WIN": REID HIS LIPS
Though Bertelsmann's announced pact with Napster is making worldwide headlines, that alliance may be destined for even greater obstacles, given internal dissent, the intransigence of competing label groups and the wariness of long-term Napster users. Will Listen's combination of "label-neutral" affiliation—all the big music groups are investors—and effective syndication network give Napster a run for its money? Not even Reid knows for sure, but he did agree to yak with us about his plans.
This was something of a bombshell, even after that Napster bombshell.
It almost didn't happen. It was just amazing—these deals always are, but this just went round and round and round. But we did get it filed and now we're hoping the transaction will go through and pass review from the courts.
This is your first foray into file-sharing, yes?
Yes. Very few people have multiple forays…
Most end up having their foray in court. How does this fit into your larger plan?
We're planning to announce our general corporate repositioning at Webnoize, but we've really moved—to use a bit of Web banter—from an initial model like Yahoo, then evolved more toward Looksmart and now it's much more like Infospace. Yahoo is obviously a search engine/directory/destination site where a great deal of traffic is aggregated on the basis of there being an immense and dizzying range of content on the Web and you need a central point through which to navigate it. We believed there would be a similar explosion in the range of music available to people as there had been with Web sites and printed matter, and we wanted to be there with a very powerful and integrated system for finding music on the Web that we felt could drive a great deal of traffic as a destination site. Before we launched, we began to move in the direction of a company called Looksmart. Like Yahoo, they are a hand-built directory of millions of Web sites. Unlike Yahoo, they syndicate this directory to many different points.
So we said, OK, we've got a specialized music directory. We hope we'll get lots of traffic at Listen.com, but meanwhile, we know that Yahoo, RealNetworks and Excite and all these other people are going to have their own directory of downloadable music. And rather than have them build it themselves, we'll syndicate it to them and share in the economics and page views that it drives. So we have eight of the top ten search engines as distribution partners. And we have RealNetworks, Shockwave and AOL—a lot of big, big sites. That was our second evolution.
The third evolution started about four months ago, when we said, OK, now we have this immense syndication network. Why don't we figure out if there are other products we can bring to this network—not necessarily ones that we built ourselves? There's something along the lines of 30 or 35 content-service providers that could be integrated into a portal or comprehensive search solution. We'll basically resyndicate their content to our distribution network and make money that way. Infospace in Seattle is the best example of a company that does that; they're worth some staggering amount of money, like five or six billion dollars on all of $100 million in revenue, because this is a model that's very scalable, high-margin, that people really adore.
So we are syndicators, and with this infrastructure that we're planning to acquire, we can go to any label that wants to have its own peer-to-peer file-sharing system and say, "We've got one, and it will look like you." It'll look like Sony. It'll look like Universal. Or, we can go to any portal. We can go to Yahoo or Excite and say, "If you want to have a peer-to-peer system that's named after yourself and looks like your user environment, we'll syndicate that to you. We are syndicators. And we'll have it up on the Listen site, too, of course.
But what would such a system consist of, in terms of content?
It will consist of whatever the rights-holders are comfortable giving us on whatever terms they feel comfortable giving them to us on.
Are you talking about a centralized server?
There could be a centralized server component, or it could be strictly p2p. Listen has a very robust p2p infrastructure, but I believe it could make sense to have a centralized server with some cleared content on it so if somebody's getting on the system and that particular file doesn't happen to be available over the p2p system, they can get it off a central server.
How do you police the legitimacy of the music moving through such a network and avoid exactly the same legal morass that other file-sharing companies have wandered into?
We're not commenting publicly yet on our exact plans for Scour's infrastructure post-acquisition, because it's still under review by the court and it probably wouldn't be very respectful to the judge for me to be talking about this as a done deal. What I can say is that Scour has, as a matter of public record, entered in their pleadings a request that the Scour Exchange [Scour's community-based file-sharing application] be shut down. The judge has to approve that, believe it or not, because they are in bankruptcy. Both boards, both teams have approved and are embracing the notion of a combination. If and when the transaction closes, I'll be more comfortable talking about what our plans are. So we'd be inheriting a shut-down infrastructure which happens to be label-neutral, highly scalable—to millions of users—and without any legal baggage. And we will proceed with caution to make sure it doesn't acquire any legal baggage.
So if there's anyone out there, any major or indie label, that wants to do what Bertelsmann is proposing to do with Napster and say, hey, we want to put our content on a p2p system on a test basis or a promotional basis, on a paid-for basis, we will have an infrastructure that will enable that. And it's actually not a super-complex matter to say, only these files go through. You can limit the files to a certain space or domain that get published in the directory.
And a couple of tech companies have stepped forward recently with software that can identify the songs compressed in files within such a system.
Exactly. Your question seems to have been, how do you make sure people won't subvert the thing and trade files they shouldn't. The answer is, you can't make anything fail-safe in technology, and if someone wants to hack it and use it for a purpose you don't want them to use it for, they probably can. But not on a massive scale.
But you would have a mechanism in place that would be designed, as much as humanly possible, to prevent unauthorized material from moving around.
Speaking hypothetically, yes. We wouldn't be messing with content that we hadn't been invited to distribute.
Do you anticipate using the multimedia side of the Scour infrastructure as much as the music side?
We were really drawn to the momentum and functionality of Scour on the music side. That's what we spent the most amount of time thinking about. We'd have to think hard about the business model that created a four-way win for the consumer.
Well, speaking hypothetically again, something people have been bandying about for some time as compensation for the lack of a physical product in the digital-distribution context is offering downloadable visuals of various kinds, which would make that architecture seem ideal.
It lends itself magnificently. What we're going to look for is the four-way win that every media infrastructure that's ever succeeded has had—the consumer wins, the artist wins, the producer wins and the distributor wins. And we believe that four-way win is attainable in a market whereby p2p has attracted 30-40 million users in the span of a year. Show me one other market that ever has. That shows me that it's ultimately consumer interest driving the ability to create that four-way win. If we have consumer interest unlike any seen in the history of media or technology, which is what we've got in peer-to-peer, I'm confident that four-way win can be built, and we want to be part of that equation. How? We're hoping to be there with proven scalability and label-neutral company. There are only two ways to be label-neutral: Take investments from no labels or from all five. We're the only company that's done the latter. And a technical infrastructure that has the ability to scale to millions of users with no legal baggage. I think that will be an important asset in the development of this new market.
That's why we're making the play we're making, plus the fact that we have boundless respect for Dan Rodrigues and his company. He's assembled an incredible, committed, passionate and astute team I feel incredibly fortunate to be working with.
Will Dan be part of the Listen team?
I'd be miserable if he weren't. The current plan is to move his team up here [San Francisco] and to work really close with them. A lot of them are from here. I think Dan is going to be one of our most important business minds as we figure out how to commercialize peer-to-peer. He's somebody I have incredible respect for—one of the biggest pluses of the combination, actually. The incredible sophistication and maturity he brings to business in his mid-twenties—when I was his age, I was stumbling around drunk in Cairo! And that was about all I was capable of doing at that point. I think he's going to be an absolutely amazing business athlete.
What are the other assets, apart from the technology, that you've agreed to purchase?
We'll be pretty much getting almost everything: all the technology and the physical infrastructure that underlies it, which is not trivial—millions of dollars worth of servers, and so forth—the intellectual property (I believe they filed a couple of patents), the team members we were able to hire and, I believe, the URL and the brand, though I'm not sure about that.
What about user information? Is that part of the equation? Scour has had a pretty rigorous user-privacy policy.
We will adhere to that. I believe, but I'm not certain, that for us to bring any user information over, it would have to be with the permission of the users. But basically, we will honor the terms of their privacy agreement and the law. To the extent we can ask people if they want to continue, we will. But we're not going to bring anything along without asking.
What about the price?
We paid about $5 million in cash and 500-and-something [527,000] Listen shares. One of the few luxuries of being a private company is we get to be mysterious about what that is, exactly. But it's good [laughs]. If somebody handed you that, you'd be a good friend of theirs. It's real cash at a time when cash is king. It's not something we did lightly.
